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The Intelligent Investor

Four Extremely Instructive Case Histories

The Penn Central Case:


This company went bankrupt in 1970 and the whole financial world was shocked.


Here are some conclusions:


a) The company had paid no income taxes for a long period of time, which raises questions about its earnings quality.

b) There were some strange transactions from this company which are very complicated in nature.

c) The management of the company might have been misleading.


Ling-Temo-Vought Inc:

This company tried to do some enormous expansion and took some enormous debt, ending up in some terrific losses.


A) The company's expansion period was without an interruption. This amounts to a company taking a large amount of debt and becoming riskier. By 1969, the company had a combined debt of $1869 million, this is one of the largest combined debts ever by any company.

B) The author asks how did the commercial banks give away so much debt to this company when it is clear that it was a mistake.


The NVF Takeover of Sharon Steel:

At the time of acquiring, Sharon Steel was 7 times larger than NVF. NVF had a huge debt obligation in their books because of Sharon Steel. The company had to make accounting misstatements which proved to be costly for the firm. A lot of unusual items were present in their accounts. A large dilution factor was also present, making it bad to worse.


AAA Enterprises:

This company sold mobile homes or “trailers”. Mr. Williams, when went public for this company, sold 300,000 shares to himself. The company also acquired some other businesses, and things seemed pretty well at the start. But the company ran out of capital and began cooking up its books. The author is shocked that how a worthless company like this can get this much speculation from the buyers. Due diligence before buying is very important.

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Units 17/19